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CARES Act Provides Tax Credits for Employee Retention

Client Alerts

April 02, 2020

The new federal CARES Act provides eligible employers with a quarterly refundable payroll tax credit equal to 50 percent of certain wages paid between March 12, 2020 and January 2, 2021 (not to exceed $10,000 with respect to any individual employee). The credit is not available for wages for which the employer received a Families First Coronavirus Relief Act tax credit, or if the employer or an affiliate received a loan under the Cares’ Act’s Paycheck Protection Program.

An employer may be eligible for the retention credit if:

The employer’s business is fully or partially suspended due to a government order limiting commerce, travel, or group meetings for a calendar quarter.

Or:

From the time that an employer experiences a 50 percent year-over-year decline in gross receipts until the employer’s gross receipts recover to the point that they are more than 80 percent of the prior year’s gross receipts, in each case determined by reference to the same calendar quarter of the prior year.

Here’s how the law defines qualified wages:

If eligible an employer had on average more than 100 full-time employees, the retention credit is available only with respect to wages paid to employees who are not providing services due to one of the bullet points above.

For all other employers, the retention credit is available with respect to all wages paid while the employer is eligible.

The retention credit is not available for wages paid to an employee who owns more than 50 percent of the eligible employer.

Federal agencies will issue regulations and guidance with respect to these credits over the next several weeks. This information should allow employers to determine whether claiming these credits is a viable alternative for business continuation, especially in comparison to the Small Business Administration loan program or more traditional layoffs.